FCA set to apply brakes to property fund withdrawals

The Financial Conduct Authority is consulting on a rule change which may mean open ended property fund investors being required to give 180 days notice for a withdrawal of funds. The rule change is designed to tackle the increasing frequency of property fund suspensions, says the regulator. Over the past few years property funds have had to close their doors temporarily to investors several times due to investors trying to pull out their money quickly when markets turn volatile. Brexit and Coronavirus have both led to property fund suspensions. The FCA says the proposals affect a wide range of investors and managers including Self-Invested Personal Pension (SIPP) and Small Self-Administered Scheme (SSAS) providers, as well as Individual Savings Account (ISA) managers. The FCS has outlined its proposals today in CP20/15: Liquidity mismatch in authorised open-ended property funds. The regulator says its proposals would reduce the “potential for harm to investors” from the liquidity mismatch in open-ended property funds. The proposed new rules would require investors to give notice – potentially of up to 180 days - before their investment is redeemed. The FCA says it will also consider alternatives and is seeking views on other ideas. At present investors in property funds can buy and sell units on a frequent – often daily – basis. But the FCA says the underlying property in which these funds invest cannot be bought and sold at the same frequency. It said: “This creates a liquidity mismatch. When too many investors simultaneously redeem their investments, a fund manager may need to suspend dealings in the units of the fund because of the liquidity mismatch between the fund units and the underlying property assets.” The FCA says that property fund suspensions have occurred with “increasing frequency” in recent years, including following Brexit and in the current Coronavirus pandemic. The FCA said: “Fund suspensions exist to protect investors in exceptional circumstances. However, the FCA has seen repeated suspensions of these funds over recent years for liquidity reasons, which suggests that there may be wider problems.” Christopher Woolard, interim chief executive of the FCA, said: “We think that our proposals will help further our consumer protection objective by reducing the number of fund suspensions, preventing unsuitable purchases of funds, and by increasing product efficiency for fund managers. “We want open-ended funds to provide a structure through which investors can safely invest in less liquid assets which offer attractive expected returns and at the same time supports investment that benefits the wider economy.” The FCA will publish a Policy Statement with final rules as soon as possible in 2021, it said. The consultation remains open to responses until 3 November.

FCA set to apply brakes to property fund withdrawals

Related items

News from Twitter